Pimco Sees Stocks Returning 4% to 5.1% as Economy Slows

Pacific Investment Management Co., manager of the world’s largest mutual fund, said returns from U.S. equities will decline from their historic averages over the next decade as the U.S. economy grows at a slower pace. Photographer: Andrew Harrer/Bloomberg

Nov. 13 (Bloomberg) -- Pacific Investment Management Co.,
manager of the world’s largest mutual fund, said returns from
U.S. equities will decline from their historic averages over the
next decade as the U.S. economy grows at a slower pace.

Equities will return an annualized 4 percent to 5.1 percent
over the coming five to 10 years, down from their historical
rate of almost 10 percent, Saumil Parikh, a portfolio manager
who leads Newport Beach, California-based Pimco’s cyclical
forum, said in a November asset allocation report being posted
on the firm’s website today.

“If investment in the U.S. economy does not pick up
substantially over the next five to 10 years, the
unsustainability of large public sector deficits will put
tremendous pressure on corporate profits and their ability to
keep up with nominal GDP growth,” Parikh said.

Bill Gross, Pimco’s founder and co-chief investment
officer, said in his August investment outlook that the cult of
equity was dying and returns of 6.6 percent above inflation,
known as the Siegel Constant, wouldn’t be seen again. In his
September outlook he said stocks would still outperform bonds,
even as returns for both would be stunted.

Pimco, home to the $281 billion Pimco Total Return Fund,
started offering equity funds almost three years ago with the
opening of its EqS Pathfinder Fund.

The U.S. will have slower economic growth because there
will be more retirees than workers and productivity will decline
because of less investment, Parikh said. Growth in nominal gross
domestic product will slow to 4 percent to 5 percent from an
average of 6.4 percent over the past 110 years, he said.

“These forecasts reflect the environment of financial
repression the U.S. economy finds itself in today due to
deleveraging, and one that we see persisting to some degree over
the next five to 10 years,” he wrote.